National Press Club

Panera founder slams "short-sighted" investors, aims for long-term value in companies

April 26, 2019 | By Gwen Flanders | glflanders@gmail.com

Panera Bread founder Ron Shaich describes the dangers posed by giving priority to short-term investment returns over long-term innovations at an April 26 National Press Club Headliners luncheon..

Panera Bread founder Ron Shaich describes the dangers posed by giving priority to short-term investment returns over long-term innovations at an April 26 National Press Club Headliners luncheon..

Photo/Image: Alan Kotok

Ron Shaich, who founded Panera bakery-cafes and built the company into the best-performing restaurant stock for the past 20 years, figures he knows something about business success, and he's on a quest to convert corporate boards to his view.

Hedge funds and other activist stock investors, reinforced by high-frequency, algorithm-based trading that accounts for as much as 40% of the market, press for short-term profits at the expense of innovation and time-consuming transformation, Shaich, Panera's CEO until 2018, said Friday at a National Press Club Headliners luncheon.

"These activists are taking these companies hostage for their short-term interests," he said.

In response, he said, corporate managers and boards "try to outmaneuver the activists" with actions like layoffs and plant closings that boost the bottom line temporarily.

"Our public markets have become increasingly short-sighted, and indeed hostile, to companies like Panera that compete on the basis of long-term transformation," he said. "That's the truth. The question is why. And the reality is investors today in the public markets ... are increasingly renting stock and not owning shares of a company."

Fifty years ago, he said, the average time an investor owned a stock was eight years. Today it's less than eight months.

Hedge funds are "trading on an assessment of the next data point," Shaich said. "When I talked to hedge funds, the question they would ask me is what are my comps going to be, my sales, next week."

"When you've got this prevalence of short-termism, when you have this advent of activism, you end up with fear hanging over the decision-making process, he said. CEOs "begin to think short term and avoid the kinds of of long-term transformations that actually create the value in a company like Panera."

Quoting author Clay Christensen, Shaich said such a short-term focus jeopardizes the ability of companies "to innovate, compete and ultimately generate real GDP growth. Folks, real GDP growth, which informs our economy, only happens when you have innovation, only happens when you have productivity increases."

"Structural remedies are necessary, and they are available," he said, including "differential voting rights, based on how long somebody owns stock. The fact that you owned stock for 10 seconds shouldn't give you the same rights as somebody who's been invested in that company for years."

Shaich is putting his money where his message is as managing partner of Act III Holdings, a $300 million fund investing in public and private companies that focus on creating long-term value.